Sin City's Latest Savior: Electronic Dance Music

This story appears in the September 2, 2013 issue of Forbes.
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Calvin Harris and Tiësto (pictured) are the world's two highest-paid DJs--and part of the reason behind the recent revival in Las Vegas. Story by Ryan Mac and Zack O'Malley Greenburg

It's 1:30 a.m. as Saturday turns into Sunday in Las Vegas, and Neil Moffitt hasn't had a drop to drink. His 3,000 guests, churning under strobe lights at Hakkasan, the brand-new 80,000-square-foot nightclub complex Moffitt oversees, are another story. Hopped up on vodka, Red Bull and who knows what else, they're gyrating to the latest electronic concoctions of Calvin Harris, a DJ who last year made $46 million, more than Derek Jeter and Kanye West--combined.

For Moffitt the $300,000 or so he'll likely pay
Harris this night is easily justified. He applies the same per-head math that Vegas uses to draw in gamblers: Visitors--excepting a few VIPs and attractive young women--will likely pay $50 just to get in and might drop $100 on drinks. Moffitt even has his high rollers: A handful will shell out $10,000 or more for one of the club's prized tables. "Calvin is a line item," he says, "that fell within our business model."

This formula provides the newest salve to Sin City's wounds. Visitor volume, the key metric to Vegas' fortunes, dropped 5% between 2007 and 2010. Still worse, gaming revenue dropped 18% over the same period, as Nevada's onetime oligopoly on games of chance continues to erode, forcing the Strip to reinvent itself yet again. Bugsy Siegel recognized that glitz and shows could make a desert dice town mainstream (Broadway with gambling). Then came conventions. In the early 1990s the Strip transformed into a family-friendly theme park (Disneyland with gambling), and a shopping mall arms race followed (Rodeo Drive with gambling). The new savior of the moment: nightclubs and electronic dance music, with some of the world's wealthiest titans betting big on the Ibiza-with-gambling formula.

Steve Wynn spent $100 million to build crown-jewel nightclub XS at his eponymous casino and now operates three other supporting venues across two properties. Clubs like Tao at Sheldon Adelson's Venetian and the Cosmopolitan's Marquee operate outdoor day clubs so that the party can continue around the clock. In May billionaires Ron Burkle and Cirque du Soleil's Guy Laliberté opened Light at the Mandalay Bay, a venture that cost more than $25 million.

Moffitt's primary backer, Abu Dhabi's Sheikh Mansour bin Zayed Al Nahyan, bought the Manchester City soccer club in 2008--and invested more than $100 million in Hakkasan, which opened in the MGM Grand a month before Light. The nation's largest, most expensive club, it features a suspended performance platform for dancers, floor-to-ceiling LED screens and a two-story waterfall.

While the club crowd doesn't spend as much, overall, as the old-school slot pullers and dice throwers, the electronic music scene seems to be a legitimate draw. This year Vegas will likely attract 40 million visitors for the first time in its history, including the 115,000 who attended the DJ-centric Electric Daisy Carnival over three days in June. "You have to find venues and amenities that aren't part of the casino," says MGM Grand President Scott Sibella. "I don't think anybody in this town, in my opinion, really knew that electronic music would take off the way it has."

Moffitt ran a handful of clubs in central England before dabbling in a festival business whose majority interest was sold to Live Nation in 2005. By then he had already moved to Vegas, finding success off the Strip before persuading MGM to let him lease space for Hakkasan. That club's opening has accelerated a talent war, as the clubs pay up for proven draws to protect their investments, to the benefit of those like Harris, Tiësto ($32 million last year) and David Guetta ($30 million). Casinos blare the names of their expensive DJs over the Strip with the same gusto with which they once advertised the Rat Pack and Siegfried and Roy.

"Hakkasan came in the marketplace, and they caught us off guard by offering significantly more than we had offered to our existing artists," says Sean Christie, a managing partner for several Wynn clubs. Nick "Afrojack" van de Wall, a DJ who can easily command more than $100,000 a night, says he was offered "almost double" his usual fee by Hakkasan but stuck around at XS because he didn't want to "start all over again." (He got a "competitive raise" to stay.)

So while the DJs clearly profit, how will these expensive superclubs fare? Moffitt is coy on numbers, saying only that they're "significantly ahead of budget." FORBES estimates revenues of $100 million for the club's first 12 months, with profit margins in the neighborhood of 20%. At that rate it'll take five years for Hakkasan to make back its investment, about as long as a club can stay white-hot in a flavor-of-the month market.

But the boom is bringing people back to Vegas--and even if Hakkasan barely breaks even, backers will take their profit through brand extensions. They've now got plans to expand into clubs, restaurants and boutique hotels worldwide.

"I'm a very compulsive person," says Moffitt, soberly sipping a Starbucks skinny latte--his only Vegas vice. "I'm all in or all out."